Dell Runs With a Rebel

Signs of recession abound. Subpar outlooks from Cisco (Nasdaq: CSCO  ) and others suggest that a tech spending slowdown is upon us. What's a computer vendor to do? One, Dell (Nasdaq: DELL  ) , is responding by (a) trimming costs and (b) making its products more efficient and, thereby, more attractive to cost-conscious customers.

Let's talk cost cuts first. CEO Michael Dell, in his seemingly never-ending quest to create "Dell 2.0," has offered up to a week of unpaid leave to most employees in an effort to reduce expenses this quarter. Dell has also instituted a hiring freeze.

Both moves are likely to have a noticeable short-term effect on Dell's checkbook. But, as an investor, I'm far more interested in the long-term. That's where the firm's quest for efficiency will have an impact. Dell, like peer Hewlett-Packard (NYSE: HPQ  ) , is working with Rule Breakers recommendation VMWare (NYSE: VMW  ) to make it easier to create virtual machines from one PowerEdge server.

But Dell also goes further, as InfoWorld's Andrew Binstock explained recently in a review of the new PowerEdge:

The machines provide extensively scalable RAM. One of the most pressing constraints to consolidating systems on a virtualization platform is RAM. This is due in part to the tendency of hypervisors to allocate the VM's full configuration of RAM, even if little of it is actually used; having lots of RAM is a boon to host systems.

Translated, this means the new Dell severs are designed, from the ground up, to be more efficient at creating and managing virtual machines using VMWare's hypervisor technology.

Expect top tech buyers to be pleased. In July, a Goldman Sachs survey of 100 managers with strategic decision-making authority -- Chief Information Officers, in most cases -- found that their top two 2009 priorities for tech spending were server virtualization and server consolidation, otherwise known as the process of reducing the size of a physical network by making its component parts more efficient. Sound familiar?

Today, IBM (NYSE: IBM  ) appears to be winning the server war. But, by partnering with VMWare, Dell has fired a broadside that's bound to have an impact. Brace yourself, Fools.

Get your clicks with related Foolishness:

Dell is an Inside Value pick. VMWare is a Rule Breakers recommendation. Try either of these market-beating services free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers owned shares of IBM at the time of publication. The Motley Fool's disclosure policy is virtually unstoppable.


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